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  • Wed, Jun 24 2009
  • 11:16 AM » April FOMC Meeting Minutes
    Published Wed, Jun 24 2009 11:16 AM by Federal Reserve
    Minutes of the Federal Open Market Committee
    Click Here to Read the Full Article

    Source: Federal Reserve
  • 11:15 AM » April 29 FOMC Statement
    Published Wed, Jun 24 2009 11:15 AM by Federal Reserve
    Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.
    Click Here to Read the Full Article

    Source: Federal Reserve
  • 10:26 AM » New Home Sales Fall 0.6% To 342,000 Rate
    Published Wed, Jun 24 2009 10:26 AM by feeds.foxbusiness.com
    New Home Sales Fall 0.6% To 342,000 Rate
    Click Here to Read the Full Article

    Source: feeds.foxbusiness.com
  • 10:23 AM » Fears of big bank problems return
    Published Wed, Jun 24 2009 10:23 AM by CNN
    Betting against the banks is back in fashion. A key market measure of the health of the biggest global financial institutions has deteriorated this month, after showing sharp improvement in April and May.
  • 9:44 AM » Fed to Hold Fire on Buying, Talk Down Rate Hikes
    Published Wed, Jun 24 2009 9:44 AM by www.foxbusiness.com
    The Federal Reserve will emphasize that the U.S. economy remains fragile in a policy statement later on Wednesday, as it talks down expectations for a rate hike this year and holds fire on expanding asset purchases.
    Click Here to Read the Full Article

    Source: www.foxbusiness.com
  • 9:25 AM » Cheatsheet: What to Look for From the Fed
    Published Wed, Jun 24 2009 9:25 AM by WSJ
    When the Federal Open Market Committee concludes its meeting today, there will be three issues that markets will be focused on: rates, the wording of the statement and asset purchases. Even though no major changes are expected, subtle alterations can give hints to the Fed’s thinking. Rates The lead actor in previous Fed drama — interest rates — has essentially left the stage. The federal funds rate was set in a 0%-0.25% range in December, and last month the central bank clearly stated that it would maintain that level “for an extended period.” In the Journal’s most recent economic forecasting survey, not one of the 52 participants expected any change in rates this month. The only potential for change would be the announcement of a specific timeline. “We think that there is a nontrivial risk that the Fed may perhaps follow the lead of the Bank of Canada and explicitly delineate a timeline over which rates will be held accommodative,” said Millan Mulraine of TD Securities . Such a move isn’t particularly likely, as the Fed aims for maximum flexibility and has to balance the views of all committee members, but it would “provide an anchor for short-dated bonds,” Mulraine said. Statement Wording “We expect the FOMC statement to remain broadly unchanged from April,” said economists at Nomura Securities echoing the general consensus on the Fed’s tone. Data since the last meeting have been mixed, and haven’t substantially altered the Fed’s outlook. Despite some rumblings about inflation by market participants, Chairman Ben Bernanke has made it clear that he expects disinflation for the rest of this year. Concerns about inflation have been sparked by a recent rise in yields on longer-dated bonds, but Fed officials have indicated they view that increase as a sign that credit markets are normalizing. Though they aren’t worried about the inflation implications of the run-up in rates, the central bank may seek to mollify markets by clarifying its exit strategy. “We suspect that a...
  • 9:25 AM » First Signs of a Two-Tiered Banking Structure Emerge
    Published Wed, Jun 24 2009 9:25 AM by Seeking Alpha
    submits: The gap between banks with TARP funds on their books and those that have paid them back is getting wider by the week. CNN Money reports that the brain drain of investment bankers at Citigroup and Bank of America is on the two firms. (In all fairness to the banks however, the article doesn’t explain at all how this is happening, it just points out the phenomenon of bankers leaving. If you have been reading BNET Finance since the beginning of the year .)
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:25 AM » Money-Center Banks to Re-Default on Their Loan Modifications
    Published Wed, Jun 24 2009 9:25 AM by Seeking Alpha
    submits: I was reminded the other day of the stupidity of crowds. I realized I had joined one. I pulled my car over, opened the door, and got wildly sick on the side of the road. It really cleared my head and I felt great. I know now a new systemic default of the financials should be taken as given. I put this forecast at ten to one odds. It is based upon a few simple facts. I can’t explain them away. Maybe you will understand them better than me? Or maybe you will restock the bunker? I have.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:25 AM » Currencies: Dollar consolidates as traders await Fed
    Published Wed, Jun 24 2009 9:25 AM by Market Watch
    The dollar gains on its major counterparts but sticks to narrow ranges as investors await the outcome of the U.S. Federal Reserve’s two-day policy meeting.
  • 9:25 AM » FHFA Releases Research Paper "A Brief Examination of Previous House Price Declines"
    Published Wed, Jun 24 2009 9:25 AM by FHFA
    June 17, 2009: FHFA Releases Research Paper "A Brief Examination of Previous House Price Declines"
  • 9:17 AM » Cuomo’s Money Manager Received Funds Linked to Pension Scandal
    Published Wed, Jun 24 2009 9:17 AM by Bloomberg
    EnTrust Capital Inc.,a hedge fund firm that’s handled New York Attorney General Andrew Cuomo's personal and campaign money, received state pension funds to invest from a company he has identified as paying possible illegal kickbacks.
  • 8:54 AM » Fed admonished not to raise rates before 2011
    Published Wed, Jun 24 2009 8:54 AM by CNN
    Read full story for latest details.
  • 8:54 AM » 9 REITs That Had to Be Destroyed in Order to Survive
    Published Wed, Jun 24 2009 8:54 AM by Seeking Alpha
    submits: In 1968 at the height, so to speak, of the Vietnam War, U.S. Air Force Major Chet Brown was fresh out of ideas and common sense. Tired, frustrated and on the wrong end of a microphone after a battle for the provincial capital of Ben Tre, he famously allowed that it had become necessary to destroy the town in order to save it. Such is the logic surrounding a spate of REIT equity offerings in the first half of 2009. Undercapitalized and over-leveraged, many REITs had no choice but to enter into dilutive transactions in order to survive. But like Ben Tre, these 9 REITs have been flattened by massively dilutive equity offerings, and nobody can predict when they will be able to meaningfully grow their dividends again.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:54 AM » OECD nudges up 'fragile' economic view
    Published Wed, Jun 24 2009 8:54 AM by Market Watch
    The deepest recession in 60 years is nearing its bottom, but the recovery is likely to be “weak and fragile,” the Organization for Economic Cooperation and Development said in tweaking its view higher for the first time in two years.
  • Tue, Jun 23 2009
  • 8:46 PM » S&P gains on bargain hunting, but Boeing hits Dow
    Published Tue, Jun 23 2009 8:46 PM by Reuters
    NEW YORK (Reuters) - The S&P 500 rose on Tuesday as investors hunted for bargains a day after a steep sell-off, but another delay for Boeing's 787 Dreamliner kept the Dow in the red.
  • 4:23 PM » New Rules on Home Appraisals Thwarting Many Sales
    Published Tue, Jun 23 2009 4:23 PM by CNBC
  • 4:23 PM » New York Fed purchases $2.072 billion in agency coupons
    Published Tue, Jun 23 2009 4:23 PM by NY Fed
    New York Fed purchases $2.072 billion in agency coupons
  • 9:16 AM » Will the Return of Volatility Keep Investors on the Sidelines?
    Published Tue, Jun 23 2009 9:16 AM by The Big Picture
    Good Evening: U.S. stocks today suffered their broadest and deepest retreat since the March lows. That this weakness in equities was confirmed by the action in other parts of the capital markets and was accompanied by rising volume and volatility levels may mean that a correction of the March-June rally is now under way. A gloomy economic outlook issued by the World Bank was the given excuse for today’s decline, but the green shoots crowd has more to worry about than official forecasts. Bullish sentiment reached elevated levels this month, as did the supply of equity sales by corporations and their officers. Whether this pullback in the major averages is mild or something more severe may therefore depend upon the risk appetites of those who’ve been on the sidelines. Digesting the World Bank’s updated (and more downbeat) economic projections wasn’t much of a problem for Asian markets, but European equities were certainly under pressure last night. Our stock index futures were off less than 0.5% a couple of hours before trading began today, but the post-expiration selling pressure kept building until the major averages were forced to open between 1% and 2% lower this morning. As there was nothing in the way of economic news to contemplate, market participants were forced to consider whether or not to take seriously the prognostications of the World Bank’s many economists. To some, the early downdraft in the major averages suggested a causal link, but I find it hard to believe that investors would suddenly put so much stock in a staff that has heretofore been either wrong, ignored, or both. Should investors now believe the ratings agencies, too? Equities never did recover from their early sinking spell, and Monday’s few rallies were as weak as they were brief. Once the S&P penetrated the 900 mark in the late morning, it was never able to regain the “9 handle” before the bell. Energy, materials and transportation (read: economically sensitive) names led the swoon, and...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 9:15 AM » Angelo’s Ashes
    Published Tue, Jun 23 2009 9:15 AM by The Big Picture
    In the June 29, 2009 issue of , Connie Bruck slashes and burns her way behind-the-scenes at Countrywide Financial. She paints a somewhat sympathetic portrait of the Man with a Tan, Angelo Mozilo. His driven personality eventually led him to disdain risk management on the altar of market share. As the 2000s progressed, his increasingly bad judgment and poor decision-making skills led to the end of his reign in disgrace and now scandal. Excerpt: “Mozilo had gained full control of Countrywide in 2000, after the retirement of his partner, David Loeb, and he relished the freedom. The company had recently moved its corporate headquarters from Pasadena to Calabasas, an hour’s drive north of downtown Los Angeles, where it occupied a sprawling Mediterranean-style villa at the foot of the Santa Monica Mountains. The senior executives’ offices were on the third floor, where the corridors were lined with Hudson River School paintings, by Thomas Cole, Frederic Edwin Church, and others. In the executive dining room, lunch was served each day, at a long table that seated twenty, with Mozilo at the head . . . Under Mozilo’s leadership, Countrywide’s growth had been astonishing. Between 2000 and 2003, the company tripled its workforce, to more than thirtyfour thousand. The company changed its name from Countrywide Credit Industries to Countrywide Financial Corporation—a proclamation that it was no longer a mere mortgage company. A fullfledged diversified financial-services company, it owned a bank, sold title insurance, and traded securities. Mortgages, however, remained the core of its business, and, according to Inside Mortgage Finance, it was the third-largest home-loan provider in America, after Wells Fargo and Washington Mutual. Mozilo wanted Countrywide, which he always referred to as his “baby,” to be No. 1, a position it occupied briefly, in the early nineties, before being overtaken by the competition. Mozilo was aiming to achieve a market share—thirty to forty per cent—that...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 9:15 AM » JPMorgan on “Exit Strategies”
    Published Tue, Jun 23 2009 9:15 AM by acrossthecurve.com
    This is an excerpt from a very long piece by JPMorgan economists which discussed management of the Federal Reserve balance sheet and various exit strategies from the array of unconventional policies which the Fed currently employs. When will the Fed hike rates? The FOMC has stated an intention to keep rates low “for an extended period.” Now that the economy has moved from free-fall to controlled descent, the question of what an “extended period” means is becoming more interesting. Over the last 15 years, the dominant paradigm for understanding monetary policy has been interest rate rules and, in particular, the Taylor rule. In its simplest form, the Taylor rule says that the fed funds rate is set in response to deviations of inflation from a target inflation rate and of output from its full-employment, or potential, level. (Alternative variants include the lagged funds rate or forecasts of future output and inflation). The popularity of the Taylor rule stems from two factors: first, the empirical success of the Taylor rule in fitting the actual behavior of monetary policy has meant that the rule is often used to describe and predict the path for the funds rate, and second, in more theoretical derivations of the optimal policy rule that central banks should use, Taylor- like rules are usually prescribed as the ones central bankers should follow. If one takes this latter proposition seriously, and believes the FOMC does as well, then the prospect of a hike in the funds rate anytime before 2011 looks exceedingly unlikely. The main reason for this is that even under fairly optimistic assumptions about the outlook for growth over the next 18 months, the output gap should remain negative and large in absolute value. The J.P.Morgan forecast sees negative output gaps persisting until 2013. Because inflation is also expected to persist at a rate below the Fed’s 2% target, the prediction of a standard Taylor rule would predict the that the funds rate would not turn positive for...
    Click Here to Read the Full Article

    Source: acrossthecurve.com
  • 9:15 AM » The Fed: What exit strategy? The drama isn't over
    Published Tue, Jun 23 2009 9:15 AM by Market Watch
    Economics professor Mark Gertler, a former close colleague of Fed chief Ben Bernanke, says the U.S. central bank is unlikely to rush into any 'exit strategy' from current policy just yet. Many other analysts agree.
  • 8:59 AM » Healthier Corporate Balance Sheets Don’t Mean Higher Capital Spending
    Published Tue, Jun 23 2009 8:59 AM by WSJ
    The U.S. business sector has done the sensible thing during this lengthy economic downturn: reduce inventory and debt. The abrupt end to the era of easy credit and the massive drop in consumer demand have forced companies into an austerity mode now reflected in healthier balance sheets. In the classic economic cycle, this would mean positive news for firms poised to take on new opportunities as soon as the economy shows lasting signs of recovery. The problem: few companies appear ready to stop the cuts in spending on plants and equipment. The continued drop in capital projects will be another drag on overall economic growth for the rest of the year, adding fuel to the argument that the first year of recovery could be the weakest on record. Slower debt accumulation has been a prime contributor to the balance-sheet improvement. According to Fed data, corporate borrowing has fallen sharply since peaking in 2007. The corporate sector’s borrowings ran at an annual rate of about $140 billion in the first quarter — down from a pace of more than $800 billion in 2007. And small businesses saw an outright drop in borrowing last quarter. To be sure, not all companies are in good financial health. And part of the ongoing debt reduction has been forced by stricter lending standards. But the decline also reflects better money management in the face of reduced funding needs. The massive drawdown in inventories in particular means less need for short-term financing. As Steven Ricchiuto of Mizuho Securities writes, corporate borrowers spent the first quarter “paying down debt, extending duration, and cutting their debt service burden.” Moreover, he adds, “Our tracking of corporate bond origination suggests that this dynamic remains in place in the current quarter.” Of course, dangers remain now that the recession is well into its second year. A recent study done by Charles Mulford at Georgia Tech found that free cash flow margins (basically, the money available to shareholders) for nonfinancial...
  • 8:59 AM » Stock futures point up as Moody's says U.S. rating safe
    Published Tue, Jun 23 2009 8:59 AM by Reuters
    NEW YORK (Reuters) - Wall Street was set to rise at the open on Tuesday, the day after the worst one-day loss in two months, as Moody's Investors Service said the U.S. government was not in danger of losing its top rating.
  • 8:59 AM » Will Commercial Real Estate Crisis Demolish Community Banks?
    Published Tue, Jun 23 2009 8:59 AM by Seeking Alpha
    Tom Lindmark submits: Sometimes it pays to be late to a story. In this case, the decline in commercial property values probably has a lot to do with the problems community banks appear to be facing which I discussed in the below.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • Mon, Jun 22 2009
  • 5:43 PM » Lesson From the Depression: Different This Time?
    Published Mon, Jun 22 2009 5:43 PM by WSJ
    Economists are increasingly confident that the U.S. isn’t in for a repeat of the Great Depression, but comparisons keep on coming. One particularly interesting project is that is looking at news from the Wall Street Journal in 1930. (Hat tip, ) Some of the similarities are spooky. For example, “A Turn of the Tide Near” … “It cannot be imagined that the wholesale failures and interest defaults characteristic of earlier depressions will now be repeated. Confidence in our banking system wholly precludes the money panics of former eras.” Of course, the current recession is nowhere near severe as the Depression. A great series of charts by the shows that by almost every measure the Great Depression was more severe by this point in the cycle. There are a few spots that give one pause. Notably, the data from the Depression show a number of significant upticks before the beginning of another leg down. It’s worth remembering that “green shoots” don’t always turn into flowers. The CFR does have one chart that differs substantially from the trajectory of the Depression. Government intervention through spending came much earlier in the cycle this time. The administration hopes that such stimulus will avoid a repeat of the 1930s. But there are always unintended consequences to government policies. From the 1930s blog: “Treasury Secretary Mellon denies Smoot-Hawley tariff will damage business, says tariff will end uncertainty, criticism has been exaggerated, and flexible provisions in the law will be used to improve it. Says previous tariffs have always caused ‘gloomy prophecies’ that have never materialized. Hoover’s announcement on tariff favorably received due to removal of business uncertainty, and his announced intention to use his authority via the tariff commission to fix problems with the law.” That’s not to say the stimulus is comparable to Smoot-Hawley, just a reminder that success or failure is rarely clear in the short term.
  • 5:43 PM » Treasury to Start Huge Auction As Jitters Persist in the Market
    Published Mon, Jun 22 2009 5:43 PM by CNBC
    The US Treasury market should handily digest a record sale of 2-year Treasury notes on Tuesday, but the start of the Fed policy meeting and existing home sales may keep investors on edge.
  • 3:18 PM » MBA Adjusts Forecasts: Rising Rates Choke off Refinancing
    Published Mon, Jun 22 2009 3:18 PM by mbaa.org
    Current Housing and Mortgage Market Activities
  • 2:52 PM » Harvard: 2009 State of the Nation’s Housing Report
    Published Mon, Jun 22 2009 2:52 PM by Calculated Risk Blog
    “The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery. For now, markets remain under considerable stress.” Eric S. Belsky, Executive Director of the Joint Center for Housing Studies of Harvard University. From Jeff Collins at the O.C. Register: The U.S. housing market will rebound eventually, according to a Harvard University report. Demographics and underbuilding are conspiring to up demand and revive home prices. But that day still is a long way off, perhaps not until sometime after 2010, the university’s Joint Center for Housing Studies said in its 2009 State of the Nation’s Housing report ... •Read the press release: ! •Read the fact sheet: ! •Read the report: ! Jeff has more. I think this graphic is informative: Click on image for larger graph in new window. This shows that the worst mortgages were the private label securities (as an example mortgages originated by New Century, and securitized by Bear Stearns).
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:51 PM » The Housing Wealth Effect?
    Published Mon, Jun 22 2009 2:51 PM by Calculated Risk Blog
    Here we go again on this hotly debated topic: How much do changes in house prices impact consumption? Charles W. Calomiris of Columbia University, Stanley D. Longhofer of the Barton School of Business and William Miles of Wichita State University argue at the WSJ Real Time Economics blog that the wealth effect of housing has been overstated: ...[M]any still fear that lower home values will depress consumer spending. This “wealth effect,” a drop in home values that causes consumers to cut back on purchases, is thought to dampen economic growth and hamper any recovery. At first glance, it seems reasonable to expect such a wealth effect. If consumers are less wealthy because of declines in the value of the assets they own, whether they be stocks or their homes — it seems logical that they would cut back on their spending. Indeed, many prominent economists have conducted research purporting to find large housing wealth effects, and often argue that the wealth effect from homes exceeds that from equities. Moreover, the Federal Reserve employs a model, which presumably guides its policies, that assumes the housing wealth effect is large. A more careful look at the data, guided by economic theory, however, suggests that much of this evidence has been misinterpreted and that the reaction of consumption to housing wealth changes is probably very small. ... an increase in house prices raises the value of the typical homeowner’s asset, but such a price increase is also an equivalent increase in the cost of providing oneself housing consumption. In the aggregate, changes in house prices will have offsetting effects on value gain and costs of housing services, and leave nothing left over to spend on non-housing consumption. Up to this point, we have neglected the question of whether housing wealth change affects consumption through another, indirect channel — a financing channel — by affecting consumers’ access to credit. [CR note: this is MEW or the Home ATM] ... Some observers...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:51 PM » Problematic Foreclosure Data
    Published Mon, Jun 22 2009 2:51 PM by Calculated Risk Blog
    From the Atlanta Journal-Constitution: (ht Mark) When the most frequently quoted source of foreclosure information released its April statistics, it estimated that 3,746 properties in metro Atlanta’s five core counties had been slapped with foreclosure sale notices. But a review of local legal advertisements – the only official source of Georgia foreclosure information – suggested a decidedly different number for April, with 7,462 properties slated for auction on the courthouse steps. What’s the right number? That’s a surprisingly difficult question to answer. At a time when an explosion in the number of distressed mortgage loans has emerged as the most pressing economic issue in decades, there is no official government source for foreclosure statistics. ... RealtyTrac has faced questions for months about the reliability of its numbers. An AJC review of the company’s data in 2007 prompted RealtyTrac to admit serious inaccuracies in Georgia. The company reported a 75 percent increase in foreclosures from June 2007 to July 2007, but later admitted errors and said the filings actually increased by 14 percent. ... Some economists believe it’s time for the federal government to produce its own foreclosure statistics. And experts say many are kicking around ways to make that happen. “Ideally we would have a national database of mortgage transactions,” said [Dan Immergluck, a Georgia Tech professor]. It is very frustrating trying to find reliable foreclosure data. I use a series from DataQuick in California (for Notice of Defaults) that goes back to the early '90s. But that is just one state, and just one step in the foreclosure process and doesn't tell us how many NODs are cured. Very frustrating.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:51 PM » Moody's: CRE Prices Fall 8.6% in April
    Published Mon, Jun 22 2009 2:51 PM by Calculated Risk Blog
    From Dow Jones: Commercial real-estate prices fell 8.6% in April ... which leaves prices down one-quarter from a year earlier ... "The size of April's decline, following a 5.5% decline in January, also suggests that sellers are beginning to capitulate to the realities of commercial real-estate markets," says Moody's Managing Director Nick Levidy. ... Prices in the CRE market are not as sticky as the residential market, so prices fall much quicker. We've seen plenty of half off sales for distressed CRE, and this report suggests the average decline is about 25% over the last year.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 12:47 PM » Regulatory Arbitrage Anecdote of the Day
    Published Mon, Jun 22 2009 12:47 PM by Seeking Alpha
    submits: has a profile of Angelo Mozilo in the latest New Yorker, which annoyingly isn’t freely available online. There’s lots of interesting material in it, but I was particularly struck with Countrywide’s regulator-shopping: Mozilo called some of the regulators’ concerns “much ado about nothing.” He decided that Countrywide should try to switch regulators, leaving the Fed and the O.C.C. for the weaker Office of Thrift Supervision (O.T.S.)…
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:16 PM » Giving Up the Dollar Addiction
    Published Mon, Jun 22 2009 12:16 PM by Google News
    There is a whiff of irony in hearing Asian government officials nagging about the potential debasement of the dollar, and then seeing them going to buy the very currency they love to hate. Yet, that’s exactly what's been happening: Since the beginning of the year, Asian central banks have resumed their foreign exchange (FX) reserve purchases, accumulating more than $75 billion on aggregate. Peanuts by the standards of recent years, though not if one puts the number in the context of collapsing global trade and finance. Evidently, some addictions are hard to give up! Admittedly, in some cases (e.g. Korea) the buying has been simply recuperating reserves lost in the midst of last winter’s global financial meltdown and the sudden stampede of foreign capital. But still: At more that $5 trillion, emerging Asia’s reserves remain $870 billion higher than their end-2007 levels ($460 billion excluding India and China), making a clown out of anyone who dares suggest they are not “adequate”. So where does one stop? Some have suggested that, as emerging markets continue to attract foreign capital flows, build up larger foreign liabilities and liberalize further their capital account, reserve adequacy considerations would justify more reserve accumulation going forward. Frankly, I see this as a very narrow-minded argument: Reserve adequacy does not have to be achieved through reserve accumulation. But let me first discuss the framework… The costs and the benefits: One way to assess reserve adequacy was laid out most recently in a 2008 IMF working paper titled “” At the crux of the argument lies a cost-benefit analysis of the “optimal” level of reserves. It goes like this: As in most things in life, when you hold FX reserves there are benefits and costs. The benefits stem from the central bank’s ability to employ those reserves in order to cushion the economy from a major disruption due to a sudden investor stampede—i.e. when foreign (and even domestic) investors decide to take...
  • 12:16 PM » Gasoline prices and consumer sentiment
    Published Mon, Jun 22 2009 12:16 PM by Google News
    Gasoline prices (in case you've been hiding in a cave and didn't know) have been on something of a roller coaster the last few years. And it looks as though we're climbing back up another hill at the moment. How much are the recent increases in gas prices likely to weigh down American consumers? Up until the fall of 2008, consumer sentiment had been closely following that roller coaster, with a sharp plunge in consumer sentiment accompanying the spiking gas prices associated with , a second, broader drop in sentiment accompanying the second, broader bump in gasoline prices in 2006, and then a significant sustained decline in consumer sentiment as gasoline prices began their remarkable rise over 2007-08. The burden on consumers from that last run-up was in my opinion a key factor that precipitated the . The path of consumer sentiment is plotted as the solid line in the figure below. I've also plotted gas prices on an inverse scale (the dashed line in the picture below) in order to highlight visually the negative relation between sentiment and gas prices. The dashed line was calculated as 22/ P for P the gasoline price in dollars per gallon, which you could interpret as how many miles you could drive for every dollar you spent on gasoline if you get 22 miles to the gallon. That strong relation between gas prices and consumer sentiment continued as the falling gasoline prices (or rising miles per dollar) between June and September 2008 lifted consumer sentiment back up. However, the subsequent financial scares and credit problems in the fall introduced a very dramatic new dynamic, causing consumer sentiment to drop back down to the June 2008 lows by November despite plummeting gas prices. So how should we assess the likely consequences of the fact that gas prices have now come back up significantly from their lows of December? The employed in my imply that a 20% increase in energy prices would historically be followed within 2 months by a 15-point drop in...
  • 12:00 PM » Secondary Sources: Fed’s Box, Gas Prices, Regional Economies
    Published Mon, Jun 22 2009 12:00 PM by WSJ
    A roundup of economic news from around the Web. Writing for the Journal, former Fed governor Frederic Mishkin says fiscal discipline is necessary to give the Fed breathing room. “How can the Fed get out of the box and pursue the expansionary monetary policy that is needed right now? The answer is that the Obama administration and Congress have to get serious about long-run fiscal sustainability. Large budget deficits naturally occur during severe recessions when tax revenue undergoes a substantial decline. In addition, fiscal stimulus to promote economic recovery when the economy is in a severe recession is a sensible prescription.” On Econbrowser James Hamilton looks at the relationship between gas prices and consumer sentiment. “How should we assess the likely consequences of the fact that gas prices have now come back up significantly from their lows of December? The Edelstein-Kilian regressions employed in my paper from a recent conference at the Brookings Institution imply that a 20% increase in energy prices would historically be followed within 2 months by a 15-point drop in consumer sentiment and a 1.4% decline (relative to trend) in real consumption spending… On the other hand, since those December prices were 88% (logarithmically) below the July 2008 peak, consumers should have been giddy in December and still be significantly more sanguine now than they had been last summer, if the only thing on their mind was the price of gasoline. Only problem is, consumers were anything but giddy in December. Credit and employment challenges have weighed far more heavily than gas prices over the last 9 months, and are presumably far more important than gas prices for determining what happens over the next few months as well. But whatever may come next on the credit front or for unemployment, the impressive spring spike in energy prices can not be a welcome development for American consumers.” The Economist’s Free Exchange blog reminds us of the importance of looking at...
  • 12:00 PM » Fed Is Facing Tough Decision On What to Say About Inflation
    Published Mon, Jun 22 2009 12:00 PM by CNBC
    Fed Chairman Ben Bernanke must find a convincing way to explain why his central bank is in no hurry to raise interest rates even though the economy is stabilizing.
  • 9:09 AM » Obama Defends Fed as Overseer on Systemic Risk
    Published Mon, Jun 22 2009 9:09 AM by CNBC
  • 9:09 AM » Roubini: Oil, Rates May Stifle Recovery
    Published Mon, Jun 22 2009 9:09 AM by The Big Picture
    The price of oil, which is rising too fast, and long-term interest rates that are beginning to creep up are likely to suppress a budding recovery, Nouriel Roubini, president of RGE Monitor, told CNBC Monday. Airtime: Mon. Jun. 22 2009 | :40:0 09 ET See also: CNBC.com | 22 Jun 2009 | 06:21 AM http://www.cnbc.com/id/31482098
    Click Here to Read the Full Article

    Source: The Big Picture
  • 9:09 AM » FEDS 2009-24: Demand-driven Job Separation: Reconciling Search Models with the Ins and Outs of Unemployment
    Published Mon, Jun 22 2009 9:09 AM by Federal Reserve
    A theory of cyclical unemployment fluctuations should model both the outflows and the inflows of unemployment, but the benchmark framework, the Mortensen-Pissarides search and matching model with endogenous separation, has difficulties generating key facts about unemployment and its transition probabilities. To overcome these empirical issues, I propose a new mechanism of job separation based on firms' demand constraints. The model is remarkably successful at explaining the behavior of labor market variables and can rationalize a number of puzzling findings: why hires tend to increase in recessions, why unemployment inflows were less important in the last two decades, and why the asymmetric behavior of unemployment weakened after 1985.
    Click Here to Read the Full Article

    Source: Federal Reserve
  • 8:38 AM » World Bank Cuts Forecast for Developed Economies
    Published Mon, Jun 22 2009 8:38 AM by NY Times
    Detailed forecasts released Monday show that the U.S., the euro zone and Japan will be among the hardest hit by the global recession this year.
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